Criticism over the Quality of Advice Review legislation relating to obligations for trustees to monitor conditions for advice fees deducted from a member’s account is misguided, according to consultants for the funds.
The QAR legislation, tabled last month, repeals and replaces section 99FA of the Superannuation Industry Supervision Act with the intention of giving greater clarity over how advice fees can be charged from a member’s super account.
But the legislation has received heavy criticism from the Joint Associations Working Group, along with licensee groups, who felt the wording of the law put too heavy a burden on super funds which meant it would not be worth the compliance risk of allowing members to charge external advice fees.
Superannuation and wealth management consultant, and former financial adviser, Harry Chemay says his reading of the bill is that trustees won’t be required to check every piece of advice.
“This is an amendment to a piece of legislation that already exists right now,” Chemay tells Professional Planner.
“That basically says if a super fund gets a member request from an external adviser and it all checks, then by all means sure, the super fund is able to make a direct payment to the adviser. This is just a clarification, and the explanatory memorandum says that.”
Jonathan Steffanoni, former managing partner of QMV Legal and now with Legal & Prudential, says the changes to the law aren’t substantive.
“It’s not considered to be a big deal,” Steffanoni says, contending the tabled legislation won’t change how s99FA currently operates, other than making it less ambiguous.
“I get the sense some of the concern may have been resulting [from] the list of requirements and obligations that are placed on the trustee to assure themselves that it’s appropriate for the fees to be deducted,” Steffanoni says.
He adds the list of conditions trustees need to meet before a member’s account can be charged remains consistent with the existing law.
“What’s different is the subsection there refers to the sole purpose test which is something trustees should’ve been mindful of anyway,” Steffanoni says.
The QAR legislation, now known as the Delivering Better Financial Outcomes reforms by the government, was tabled in late March.
Chemay says the legislative changes still follow Recommendation 7 of the QAR, which is that a fund should be able to make a payment directly from the member’s account to a third-party external adviser.
“Where JAWG and some of the other stakeholders are getting a bit concerned is that they feel the way it reads is that every bit of advice will have to be cross-checked by a super fund,” Chemay says.
Steffanoni says he understands how the law could be read as placing an obligation on the trustee to eyeball every single Statement of Advice, but that isn’t the case.
“From my experience, trustees are well aware of things that need to be considered when they’re assessing whether it’s appropriate to deduct advice fees,” Steffanoni says.
Chemay says if a fund member engages a planner and gives consent, the fund can’t contract out of its sole purpose and best financial interests’ duty, which means it will still have to meet those obligations.
“I don’t see it being on every piece of advice,” Chemay says. “They will probably do some testing or assurance.”
He adds advice reviews will be made much simpler when SOAs are replaced by advice records.
“That SOA has been the biggest red tape blocker to lower, more affordable advice,” Chemay says.
Steffanoni notes the recommended QAR changes have been favourable to advisers, and include replacing SOAs with advice records, and streamlining fee consent requirements and other disclosures.
“On balance I would’ve thought they were beneficial to financial advice licensees,” Steffanoni says.
Chemay says both sides of any debate over the legislative process must be pragmatic and meet halfway.
“A good test of this bill is that neither side gets exactly what they want,” Chemay says. “That’s probably a litmus test that it’s about right.”
He adds the shift in the regulatory landscape since the Hayne royal commission, QAR and Retirement Income Covenant means the advice and super sectors are going to have to work closer together because neither can solve the retirement issue alone.
“I’m a former financial planner so I know the pain planners have been through and Hayne was not pleasant,” Chemay says.
“Then I also see the super side because I’ve also built a retirement product for a super fund.
“I understand the pain super funds are in because they have all these obligations on them, especially with the Retirement Income Covenant where they are being forced to act as quasi-planners by the government.”
The issue over advice fee deductions hasn’t been the only drama in the QAR legislative process. After facing criticism for a slow response, Minister for Financial Services Stephen Jones released the first draft legislation last November.
However, the draft legislation left out any requirement to mandate a standardised fee consent form which has since been rectified, while the tabled legislation also had a drafting error that put commissions at risk for general advice given by risk advisers.
While Jones has conceded the drafting error over commissions, he has yet to acknowledge any potential changes for trustee duties for charging of external advice fees.
